HLIB Research Remains Neutral on Property Sector

By: Admin

KUALA LUMPUR:  Hong Leong Investment Bank Research (HLIB) has maintained a “neutral” call on the property sector and said the indicators for the sector remained sluggish but sentiment may have bottomed.- HLIB Research remains neutral on property sector

“Majority of the property developers remain cautious on FY16 outlook with an average sales target growth of 5%. Matrix Concepts and Eco World Development are more upbeat with annual sales target growth of 24% and 33% respectively.

“UEM Sunrise has the most bearish tone with lower FY16 sales target of -36% year-on-year mainly due to concern on oversupply in Johor,” HLIB said in a report.

The research house said in FY15, average new sales fell by 12% year-on-year and among its coverage universe, Matrix was the only developer that managed to achieve positive growth in full year sales (+28% year-on-year) mainly due to its focus on affordable mass market with pricing range below RM600,000.

HLIB said the sector’s indicators remained sluggish but sentiment may have bottomed. It said loan application continued to decline year-on-year basis for twelve straight months.

In addition, tight bank lending further dampened property sales with approval rate persistently below 50% and achieved a new low of 38% in January 2016.

Nevertheless, HLIB said consumer sentiment may have bottomed given the expected improvement in household income (EPF contribution rate cut, civil servant pay rise and minimum wage hike).

Sector valuation is trading at 0.64 times price-to-book (P/B) value, below -1 standard valuation (SD) band versus crisis level of 0.47 times against average of 0.82 times. For RNAV band, the sector is also trading at 40% discount, slightly below -1 SD.

“We opine that there is still lack of near-term catalyst for the sector. Any potential relaxing of property measures will be a major re-rating given its low expectation and near bottom valuation,” HLIB said.

Under HLIB’s stock coverage, IOI Properties and SP Setia were trading close to bottom of 10-year P/B band. It said IOI Properties was trading at 0.65x P/B versus its bottom valuation of 0.53 times while SPSB is trading at 1.27x P/B against its bottom of 1.12 times.

Both IOI Properties and SP Setia have limited downside of 19% and 12% respectively as compared to its bottom of 10 year P/B band.

HLIB’s top picks are IOI Properties (BUY; Target price: 2.77) and Matric (BUY; Target price: RM2.91). It said dividend yield for Matrix was one of the highest in the sector at 7.1%.

“We also have ‘buy’ call on Sunway (Target price: RM3.63) as its subsidiary SunCon will be main beneficiary from MRT2, LRT3, Pan Borneo ,DASH and SUKE,” it added.